Question on merger evaluation

Reference no: EM1343897

ABC Incorporated shares are currently trading for $32 per share. The firm has 1.13 billion shares outstanding. In addition, the market value of the firm's outstanding debt is $2 billion. The 10-year Treasury bond rate is 6.25%. ABC has an outstanding credit record and has earned a AAA rating from the major credit-rating agencies. The current interest rate on AAA corporate bonds is 6.45%. The historical risk premium over the risk-free rate of return is 5.5 percentage points. The firm's beta is estimated to be 1.1 and its marginal tax rate, including federal, state, and local taxes, is 40%.

a. What is the cost of equity?

b. What is the after-tax cost of debt?

c. What is the weighted average cost of capital?

Reference no: EM1343897

Questions Cloud

Define aggressive financing strategy : What is an aggressive financing strategy? What are components of aggressive finance strategies?

Illustrate what is the size of the bank actual reserves : The ABC Bank of Bermuda has outstanding checkable deposits of $300,000 also a reserve ratio of 10%. If it has excess reserves of $15,000, illustrate what is the size of the bank's actual reserves.

Explain what would have been the amount of inventories : Explain what would have been the amount of inventories in 2011 if the 2010 turnover ratio had been maintained?

Describing fields and options with user account set-up : Describe the fields and options associated with user account set-up.

Question on merger evaluation : ABC Incorporated shares are currently trading for $32 per share. The firm has 1.13 billion shares outstanding. In addition, the market value of the firm's outstanding debt is $2 billion.

Calculate the price of bond if ytm is given : Valuing Bonds: Syberboard has issued a bond with the following characteristics:

Why would elasticity of demand be important to you : Why would elasticity of demand be important to you in determining the products on which the taxes should be levied".

Prepare a worksheet of operations activities : Prepare a worksheet of operations activities that Harrison should inquire about this summer and if you were Harrison, what would you do

Rbocs in mfj to retain control of yellow pages : One way to provide additional revenues for the RBOCs in the MFJ was to retain control of the Yellow Pages.

User Account

All Pages